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Veronique de Rugy on Austerity Facts

Vero's austerity chart

First, I wish we would stop being surprised by what’s happening in Europe right now. Second, I wish anti-austerity critics would start acknowledging that taxes have gone up too–in most cases more than the spending has been cut. third, I wish that we would stop assuming that gigantic “savage” cuts are the source of the EU’s problems. Some spending cuts have been implemented in a few countries. Also, if this data were adjusted for inflation (which I would prefer but the data isn’t available) it would possibly show a slight decrease and certainly a flatter line for all countries. However, the overwhelming take away from the European experience is that a majority of governments haven’t really implemented spending cuts, large or small, and some have even continued to grow.

via Show Me the ‘Savage’ Spending Cuts in Europe, Please – By Veronique de Rugy – The Corner – National Review Online.

I suspect the entire debate hinges on a difference in assumptions about the relevant spending baseline. If your theory prescribes significantly ramping up spending during recession, low or flat spending growth can look perversely “austere,” even if absolute spending as a % of GDP is very high.

UPDATE

Veronique sends an updated PPP-adjusted chart:

She adds (via email):

I am not denying that spending has been cuts in Greece, Italy and Spain. But I don’t agree that the spending cuts were savage or that’s all that’s going on in Europe. For instance these guys never talk about the impact of tax increases. Yet, Avent is willing to say that VAT props up inflation. That makes any cuts, even the smallest ones much more painful. I think there is a misplaced obsession with spending cuts and spending cuts alone being the source of all EUzone problems.

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Glenn Loury on the Pernicious Influence of James Q. Wilson

“Calling a spade a spade turns out not to be a social policy,” Loury says. More:

Call me unforgiving, but I can still remember sitting at Jim and Roberta Wilson’s dinner table in Malibu, California in January 1993 listening to Murray explain, much to my consternation and with Jim’s silent acquiescence, that social inequality is inevitable because “dull” parents are simply less effective at child-rearing than “bright” ones. (I rejected then, and still do, Murray and Herrnstein’s claim that profound social disparities are due mainly to variation in innate individual traits that cannot be remedied via social policy.) Neither can Glenn Loury in 2012 ignore what he failed to see in 1983: that Wilson and Herrnstein’s Crime and Human Nature—a book that sets out to lay bare the underlying bio-genetic, somatic, and psychological determinants of individuals’ criminal behavior—is an enterprise of dubious scientific value. The behavioral theories of social control that Wilson spawned—see, for instance, his 1983 Atlantic Monthly piece, “Raising Kids” (not unlike training pets, as it happens)—and the pop–social psychology salesmanship of his and George Kelling’s so-called “theory” about broken windows is a long way from rocket science, or even good social science. This work looks more like narrative in the service of rationalizing and justifying hierarchy, subordination, coercion, and control. In short, it smacks of highbrow, reactionary journalism.

But, unlike most tabloid scribblers, Wilson’s writings had a massive effect. The broken windows argument—by cracking down on minor offenses, the police can prevent the perception of disorder that leads to more serious crimes—has influenced urban law enforcement strategists throughout the nation. Even so, as scholarly critics across the ideological spectrum have noted, there is little evidence beyond the anecdotal to show that such “quality of life” policing actually leads to lower crime rates. When I consider the impact of his ideas, I can’t help but think about the millions of folks being hassled even as we speak by coercive state agents who are acting on some Wilsonian theory recommending stop-and-frisk policing.

Neither can I overlook the reinforcement of subliminal racial stigmata associated with the institutions of confinement, surveillance, and patrol that Americans have embraced over the past two generations under the watchful and approving gaze of Professor Wilson.

via Boston Review — Glenn C. Loury: Much To Answer For (James Q. Wilson).

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Austerity Facts?

Russ Roberts wants the facts:

Which nations in Europe have slashed government spending? I suppose “slash” is an ambiguous term but when you write  that the experiment has been tried, don’t you have to show that spending has at least been cut or reduced, right? Maybe some European states have slashed the growth rate in government spending? Is that what he means? If so, shouldn’t different words be used? And either way, should there be some facts on this “experiment.” The word implies something scientific. But it all appears to be going on in the mind of the writer rather than in the real world

I’d like some facts. I have seen many articles on austerity. I can’t remember seeing any that suggest that government spending in any European country has actually fallen. Yes, there is talk of spending cuts or cuts in growth rates. But I’d like to see the data that shows the cuts have actually been implemented.

Me too. Where should I look?

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The Way Singapore Does It Is Amazing, So For God's Sake Don't Let It Happen Here!

George Akerlof and Robert Shiller make a series of puzzling and inconsistent claims in their chapter on savings in Animal Spirits. In the section on “Why Conventional Theories of Savings Have It Wrong” they argue that Americans save too little. The evidence? Americans save more and are happy with it when enrolled in a Thaler-style Save More Tomorrow plan. And when you ask them, most Americans say they save less than they’d like to. I find their remarks about standard life-cycle savings models glib. But, sure.

But then A&S say that government old-age retirement pensions are a response to undersaving. Well, maybe. But doesn’t everybody know social insurance crowds out self-insurance, at least to some degree? If we’re confident that Social Security will deliver on its promises, we’ll obviously feel less need to save than we would otherwise. (We may even choose to have fewer children — the oldest form of self-insurance.) Indeed, many Americans think (and are encouraged to think) that their payroll taxes — their “Federal Insurance Contributions” — are a form of retirement savings, though they’re really just another tax legally unrelated to transfers received later in retirement. A&S decline to address the fact that Social Security depresses the savings rate, though they do begin their chapter praising Martin Feldstein!

Even better, they work themselves into a self-congratulatory lather about Bush’s failed attempt to reform Social Security by introducing a system of mandatory retirement savings. Of course, they don’t mention that’s what the proposed policy was, conveniently sparing them the trouble of explaining away the fact that it would have significantly increased the national savings rate. They just call the policy “privatization” and move on.

Why did Bush’s attempt to reform Social Security fail? A&S say most Americans opposed it because retirees depend pretty heavily on their Social Security transfer checks. Maybe so! But the fact that retired Americans do depend so heavily on Social Security would, again, tend to explain why retirement savings aren’t higher. You can depend on Social Security! But this is what A&S choose to say: “People depend on [Social Security] because their own retirement savings are so scant.” I can’t say they’re wrong!

But wait, it gets better! In the next section, “Savings and the Wealth of Nations,” they jump right into singing Singapore’s praises for having “adopted the strategy of saving their way out of poverty.” They go on to explain the Central Provident Fund in glowing terms. Now, the CPF is a system of mandatory savings including mandatory retirement savings. What is that a heckuva lot like? Why, the Bush administration’s plan to “privatize” Social Security! Just one page after dumping on the idea, A&S now love it!

However, they conveniently manage to describe Singapore’s mandatory savings program without mentioning that it finances the retirement and health-care system. Reading A&S, you might think Singapore just forces people to save money and that’s the end of it, though they do hint that it’s funding something. Of Singapore’s unmentioned social insurance system financed by its mentioned system of mandatory personal savings accounts they say:

The system has not been “pay-as-you-go,” and the sums collected have really been invested. Largely because of the CPF, the gross national savings rate has been in the vicinity of 50% for decades.

Not only has this been just terrific for Singapore’s savings rate and rate of economic growth, A&S claim its stunning example has totally transformed China!

[Lee Kuan Yew’s] high-saving economy became a model for China, which has copied Singapore’s savings achievement and have been achieving significant economic growth fore decades.

So you might think that it wouldn’t have been a disaster had the U.S. followed Singapore’s example and replaced its “pay-as-you-go” tax and transfer retirement pension system with a system of mandatory personal accounts actually invested in the market. But, no. They hide the dots so the reader can’t connect them. They really do seem to go out of their way to prevent the reader from grasping that the Social Security reform proposal they deride was a mandatory savings program and that the mandatory savings program they praise finances retirement security.

Akerlof has a Nobel Prize. Shiller is a Nobel short-lister. So it’s hard to pin this on ignorance or incompetence. What’s going on!? Let’s jump back a page to Akerlof’s “personal footnote” about Social Security reform.

[Akerlof] was on a panel of economic advisers (a minor one) to the Kerry campaign in 2004. Up until the elections we had a conference call every two weeks. From the very first to the very last of these calls, Akerlof asserted that Kerry should affirm his support for maintaining Social Security in its current form. Toward the end, Austand Goolsbee (who is now a leading adviser to President Barack Obama) would joke, “And now we will hear from George, who will say that Kerry should demagogue the Social Security issue.”

LOL! George goes on to explain that he thinks Kerry lost because he didn’t demagogue the Social Security issue like he said he should. And then two paragraphs later, we get to read about how awesome the Central Provident Fund is.

This bit of Animal Spirits gave me whiplash. It’s incoherence is simply overwhelming if you happen to know a bit about pension systems and retirement savings. Maybe we’re seeing an unresolved problem of dual authorship. I don’t know. What I do know is that this section of the book really does convey the impression that some care was taken to omit very relevant details, and therefore to create a misleading picture — an impression only reinforced by Akerlof’s joshing, self-approving anecdote about his reputation for promoting demogogeury on Social Security. As Akerlof and Shiller are both phenomenally accomplished scholars who I’m sure have well-deserved reputations for intellectual honesty, I expect they’ll want to revise this section for the paperback edition of their book.

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You Got Morals in My Economics!

Economics, qua social science, is not a normative field. But much of the drive to understand how social interaction works is to give advice about policy. However, giving advice implies a standard for determining what counts as good advice, some kind of value theory. This is inconvenient for economists, who want badly to make policy recommendations, but who tend not to be very sophisticated moral philosophers (though there are some notable exceptions). Bryan Caplan tries to find a way around the inconvenience:

In many cases, there is no need to state your moral premise, because (economics + almost any moral premise) will do.

Suppose legalizing the market in human organs would make sick people healthy and poor people rich.  What moral premise would imply “don’t legalize”?  Sheer malevolence?  Blind adoration of the status quo?  While these are coherent moral premises, they’re so rare that the cost of addressing them is a waste of time.

It seems that Bryan thinks most opposition to markets in organs is a function of either ignorance of the likely consequences or perverse and exotic moral premises. This makes me wonder if he has ever debated this issue with anyone? Lots of people understand the economics well enough but continue to believe that markets in organs ought to be illegal. Here’s rough sketch of the standard argument.

Human beings have a certain dignity that is central to the value of human life. That dignity ought to be respected, preserved, and protected. Allowing the sale of human body parts diminishes the dignity of those involved in the transaction and erodes respect for the dignity of human beings generally. Therefore, markets in body parts ought to be legally prohibited.

Is this a good argument? No. I think it’s lousy argument, even in its most sophisticated form. But the idea that the value and conditions of human dignity imply that some things shouldn’t be bought and sold is not at all rare. Indeed, I think this is likely the dominant moral stance of most people in most places at most times in human history. If one grants the benefits of legalizing markets in organs, which I certainly do, then addressing this argument is not only not a waste of time, but is of fundamental importance in removing one of the main barriers to great improvements in human health and well-being.

Which is just to say, no, you can’t get around defending your moral premises by claiming that once the facts are established, all moral premises worth taking seriously point in the same direction. It’s just not true that there are “many cases” in which all paths converge like this. And when there is such a case, the convergence is often counterintuitive, and thus needs to be demonstrated, not just asserted. Policy analysis is at least as much applied moral philosophy as applied economics. Without some normative standard, economics has no application at all. Moreover, public deliberation about policy requires taking other people’s moral beliefs seriously and you can’t do that by ignoring them.

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The Bailouts are Like Paying Off Molested Children

Since I found it all interesting, I thought I’d just reproduce all of Will Ambrosini’s post about my last post here:

I’m actually with Will Wilkinson when he talks up “liberaltarianism” and I support a reasonable social safety net. I’m one of those people that thinks rising GDP indicates increasing interdependence, that that is a good thing and that self-sufficiency is the road to poverty. Today Wilkinson suggests a reason why liberaltarianism might be a non-starter:

[I]t’s easiest to get people to face up to tax increases if they don’t have the sense that they’re paying more just so the special interests of the winning coalition can get more.

Isn’t the conditional phrase an empirical fact about governments?

This reminds me of my dad and the Church. Even after all us kids grew up and he stopped going to church, he gave money to them every week. The Church does a lot of good things for people — disaster relief, poor assistance, etc — but a couple years ago my dad stopped giving. His primary reason: he thought his money was primary going to paying off molested children; it wasn’t going to help poor people. He didn’t want to subsidize corruption.

I don’t want to subsidize corruption either.

I think Will is just agreeing with me. I take it that the empirical fact about governments is this: when taxes go up, transfers to the special interests of the winning coalition go up. I think that’s probably a decent empirical generalization. But I don’t think most voters do. Now, if the increase in transfers is generally equal to the increase in revenues, then budgets balance only when revenues are underestimated. I’m not so sure that‘s true. And pretty sure most voters assume it isn’t.

What I was trying to say is precisely what Will is getting at: that willingness to contribute reflects a sense that the contribution is going to something worthwhile. Tax increases coupled with large spending cuts creates the sense that there is a good faith effort to balance the budget, which the tax increase is one part of.

As a matter of fact, I think the various bailouts have created a large problem for Democrats in generating public support for tax increases. Ideologues on the left enjoyed depicting the various Tea Parties as a ridiculous efflorescence of dimwitted rightwing ideology, and it was partly that. But it was also partly a real reaction to transparent distributive injustice. You can say that some of the bailouts were necessary to keep the whole system going. That may be true, but that doesn’t make it fair. (Maybe it was the best thing for the church to pay off molested children, but that doesn’t mean Will’s dad wants to pay for it.) That sense of unfairness, which is by no means limited to Limbaugh-loving Tea Partiers, together with the sting of the recession (even after it’s over), together with the typical American aversion to taxes increases that Obama has constantly catered to, is going to make tax increases on the middle class an incredibly hard sell even if there are also large cuts in spending, which there won’t be.

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Yglesias on Taxes

In an admirably frank piece in the American Prospect, Matt says the problem with Obama’s budget is that the government doesn’t have enough money to pay for it and so Democrats will need to raise taxes on the middle class if they want all this spending. This is such an important message because many Democrats are now going through a phase of magical-thinking freelunchism. Every huge new program will save money! Well, it won’t. So Matt’s right. It’s better to face up sooner rather than later to the fact that taxes need to go up a lot to pay for all this stuff. Or, we could spend a lot less. I know Matt’s down with slashing defense budgets, but I guess he just wants to spend that money elsewhere.  For my part, I think it’s easiest to get people to face up to tax increases if they don’t have the sense that they’re paying more just so the special interests of the winning coalition can get more. Large, comprehensive spending cuts together with a modest increase of tax rates on the middle class seems to me the most plausible way of regaining something like fiscal balance. After the recession.

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Ladies Still Not Taxpayer Dispensers

At Slate, Kerry Howley talks sense to Michelle Goldberg about the doubtful feminist wisdom of using population panic as a pretext for putatively “feminist” policies. Goldberg has clearly neglected Howley’s powerful Reason feature on natalist policy from which I offer this concluding excerpt:

But as pro-baby policies are inevitably sold as pro-mother, and by extension pro-woman, it’s worth recalling the sentiment behind the Australian birth premiums and Singaporean matchmaking schemes. At the heart of any fertility incentive lies an attempt to encourage a particular group of women to orient their bodies in a traditional way. Every pro-fertility policy is an effort to slow cultural transformation, to stabilize a society’s ethnic composition, to ossify a current conception of a national culture by freezing the genetic makeup of a nation. From Poland to Singapore, swollen wombs are a bulwark against change.

There is a reason we speak of “Mother Russia” and “Mother India.” Feminist sociologists such as Nira Yuval-Davis refer to women as the “boundary markers” of a state or society. While men may leave, fight, and be compromised, women represent purity and continuity. Yuval-Davis points out in her book Gender and Nation that the Hitler Youth Movement had different mottos for girls and boys. The boys’ motto was: “Live faithfully; fight bravely; die laughing.” For girls: “Be faithful; be pure; be German.” Girls simply had to be. They were the collective.

In times of great social anxiety, we see new calls for women to return to home and hearth—calls alternately cast as a return to tradition and as a progressive leap forward, but efforts, nonetheless, to enlist women in a national project while defining the boundaries of national inclusion. Depopulation is not a given, but ideologically fraught and scientifically questionable debates about gender, race, and culture will be with us no matter which way the population swings. “To know what demography is, we need to know what a population is,” the French social scientist Herve Le Bras wrote in The Invention of Populations. “That is where the trouble begins.” 

[Full disclosure: K.L. Howley and I co-own a rumbustious vizsla.]

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The $250,000 Focal Point

Yes, people who think they’ll get walloped with extra taxes if they touch that 250 thousand and first dollar don’t understand the nature of marginal tax rates. But it’s hard to escape the class war overtones of Obama’s stategy of sticking it only to those who’ve passed the magic number. If you’re under the line, you’re one of us. If you’re over the line, you’re one of them. Reserving higher marginal rates, the cut in the charitable deduction, etc. for the top bracket sends a message: you don’t deserve it and you owe us. It’s easy enough to grasp the desire to approach but not join the resented class.

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Kill the Mortgage Deduction

I agree with Ezra Klein in agreeing with Ed Glaeser. Here’s something, like trashing ag subsidies, you can get a lot of libertarians and liberals to agree on. It can be a bit disheartening to see just how little this kind of agreement amounts to when compared to the incentives of the politicans. (Iowa’s extremely powerful Senators will die in the last ditch for our subsidies.) But I think this kind of wonk consensus building really matters over the medium-term. Democracy is not a mechanical cui bono machine and elite opinion can, when not coopted by the incentives of the parties, work as a countervailing force.